Organizational Structure: Principles and Types
What is an Organization?
An organization establishes formal relationships between various units, defining functions and the authority of each position. It determines how objectives are met, linking the idea with the means to achieve it and the outcome to be reached. An organizational structure is essential for this process.
Structure
The formal organizational structure is often represented in organizational charts. Almost all departments and companies need staff who are not in the chain of command but assist managers in achieving objectives.
Purposes of Organizational Structure
- Allow the attainment of business objectives with efficiency and minimal effort.
- Eliminate duplication of work.
- Establish communication channels.
- Represent the official structure of the company.
Types of Organizations
- Formal Organization: An intentional structure of roles in a formally organized company. Individual effort should be flexible and directed towards the group’s goals.
- Informal Organization: Any joint personal activity without a conscious joint purpose.
Principles of Organization
- Unity of Command: A subordinate should receive orders from only one superior.
- Specialization: Grouping activities according to their nature.
- Authority and Responsibility: Authority is delegated, and responsibility is shared. There must be a balance between the two.
- Balance of Direction-Control: Clearly defined positions in relation to their objectives.
Division of Labor
Division of labor involves breaking down a task into its components. All organizational tasks can be divided.
Departmentalization
Departmentalization is the grouping of activities and people within an organization.
Hierarchy
Hierarchy is the plan that specifies who controls whom within the organization.
Coordination
Coordination integrates the activities of departments to pursue the organization’s goals efficiently.
Factors Influencing Organizational Structure
- Internal: Conceptual approach adopted, field of control, product diversity, type of operation, organizational size, and employee characteristics.
- External: Technology, market characteristics, and dependence on the environment.
The organization is essential for planning and control because it relates to the delegation of authority and responsibility within the company.
Organizational Levels
There is a limit to the number of people a manager can effectively supervise.
Spans of Control
- Wide Span: Superiors may be overworked and lose control of their subordinates.
- Narrow Span: Communication is fast, but there are many levels of management.
Factors Determining an Effective Span of Control
- Training of subordinates
- Clarity of delegation of authority
- Communication techniques
Types of Departmentalization
- By Business Functions: Activities are organized by area (e.g., marketing, finance).
- By Customer: Common in organizations like banks, catering to different customer segments.
- By Product: Products form the basis of the organization.
Line and Staff Authority
- Authority: The right in a position to exercise discretion when making decisions that affect others.
- Power: A broader concept, referring to the ability to influence people’s beliefs or actions.
- Line Functions: Directly impact the achievement of company objectives.
- Staff Functions: Advise and assist line staff to work more effectively towards achieving objectives.
Functional Authority
Functional authority is the right delegated to a person or department to control processes or issues related to activities conducted by other departments.